By NEIL HARTNELL
Tribune Business Editor
The government yesterday pledged “not to disrupt” the booming vacation rental market as it confirmed plans to impose taxation on the sector in the upcoming 2019-2020 fiscal year.
KP Turnquest, deputy prime minister, told Tribune Business that the revenues likely to be generated by such a move were currently unknown, and could range from as little as $5m to up to $20m-$25m.
He promised that the Minnis administration will seek to strike a balance between taxation/regulation and allowing the sector, seen as a valuable mechanism for increasing Bahamian ownership in the tourism industry and spreading its economic impact, to continue growing and thriving.
However, Mr Turnquest said it was important that vacation rental owners pay their fair share towards the maintenance of The Bahamas’ infrastructure and public services, much as the resort industry does.
“That is the plan. That’s the target date,” he added, confirming that the government plans to levy taxes on vacation rentals from July 1 this year, when the new fiscal year begins. “There are all kinds of estimates but everybody is speculating, quite frankly, on this. It may be as little as $5m or maybe as much as $20m to $25m.”
The Ministry of Finance is working closely with the Ministry of Tourism to determine the best method, and mechanism, for both levying Value-Added Tax (VAT) on vacation rentals and ensuring its smooth collection by the Department of Inland Revenue (DIR).
Mr Turnquest yesterday said the technical details were still being worked out, and he had yet to see them, as he affirmed the Government’s intent to strike the right balance between equitable taxation that was not unduly burdensome and the ease of doing business.
“There are a number of issues,” he told Tribune Business. “One is, yes, if they’re operating that kind of business it is in effect in competition with the hotels without carrying the cost the regular hotels have to carry.
“There is inherent unfairness in that, so we do need to address that from a competition point of view. Second, some of these properties are being afforded exemptions and are classified as private residences, so they’re avoiding things like real property tax, business licence and things that go along with commercial property. There are a combination of factors that we need to understand and get our head around.”
Mr Turnquest emphasised that the Government was keenly aware of the sector’s economic benefits, especially for Bahamian vacation rental owners, and that the visitors it attracts help to spread tourism’s wealth directly into communities that did not normally receive it.
“That has been a consideration for a number of years now,” he told Tribune Business. “It’s a way for Bahamians to benefit from the industry, and we don’t want to change or disrupt that.
“But, by the same token, there are second homeowners engaging in this industry and don’t believe that’s fair competition with hotel investors. We don’t want to disrupt anybody, and will be very mindful that this is a growing segment of the market, but we wish for the business to be fair and provide legitimate opportunities.”
The Central Bank of The Bahamas’ report on January 2019’s economic developments revealed that the vacation rental sector continues to grow at a “double digit” pace year-over-year.
Data from AirDNA, which analyses data from Airbnb vacation rental bookings, disclosed that there was a 37 percent advance in total listed bookings, while those for an entire home and private rooms were ahead by 35 percent and 45 percent, respectively.
The Central Bank said: “Preliminary indicators for the short-term rental market in January were also improved, as data from AirDNA showed a 37 percent advance in total booked listings relative to the same period in 2018, with gains in both entire place bookings (34.9 percent) and private room bookings (44.9 percent).
“Meanwhile, the ADR (average daily room rate) for hotel comparable listings - which is more comparable across periods - firmed by five percent to $142.40. However, the ADR for entire place listings decreased by 1.7 percent to $330.35.”
It continued: “A breakdown of the short-term rental data revealed that the dominant New Providence market noted gains in both the entire place and private room bookings, of 23.7 percent and 25.8 percent, respectively, although increased competition contributed to the decline in the respective ADRs by 9.0 percent and 2.1 percent to $266.46 and $118.18.
“Away from the capital, the majority of the listings relate to the entire place category. In Exuma, the inventory for this segment rose by 43.8 percent, while the associated ADR firmed by 19 percent to $406.
“Similarly, in Abaco and Grand Bahama, entire place listings advanced by 32.7 percent and 50 percent, respectively. Conversely, the ADR for Abaco and Grand Bahama contracted by 26.6 percent to $264.49 and by 5.8 percent to $171.01, placing them at the more affordable end of the spectrum.”
A report commissioned by the Bahamas-based Organisation for Responsible Governance (ORG) previously identified the vacation rental market as a potential growth opportunity that could boost Bahamian ownership and entrepreneurship in the tourism industry, plus aid economic diversification and activity on the Family Islands.
The report, conducted on its behalf by Oxford Economics, the research consultancy, argued that this nation’s ability to make greater inroads into the vacation rental market was being impeded by old, impractical laws and regulations.
Apart from the International Persons Landholding Act imposing “especially strict rules” on foreign home owners, the study said all vacation-based properties have to be approved by the Bahamas Investment Authority (BIA).
Data obtained by Oxford Economics showed that the Bahamas had 1,878 properties registered with Airbnb, of which 908 - just under half - were deemed to be active.
The ORG report suggested that “more relaxed investment requirements” for vacation rental home developers could be restricted to specially-designated areas, such as Trade Development Zones (TDZs), located near ports and airports.